Bitcoin trading scam lands Manchester man with half-million-dollar fine

A man from Manchester has been slapped with a fine of over half a million dollars by a New York court for operating a fraudulent scheme to solicit Bitcoin.

Late last Friday, the US Commodity Futures Trading Commission (CFTC) said the US District Court for the Southern District of New York had entered a default judgment against Benjamin Reynolds, finding that had operated a fraudulent scheme to solicit Bitcoin from members of the public which he had then misappropriated.

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According to the background of the case, in 2017 Reynolds used a public website, various social media accounts, and email communications to solicit at least 22,190 Bitcoin, at the time valued at around US$143mln, from over 1,000 customers worldwide, including at least 169 in the US.

Among other things, the CFTC said Reynolds falsely represented to customers that his business Control-Finance traded their bitcoin deposits in virtual currency markets and employed specialized virtual currency traders who generated guaranteed trading profits for all customers. He also constructed what the commission described as “an elaborate affiliate marketing network that relied on fraudulently promising to pay outsized referral profits, rewards, and bonuses to encourage customers to refer new customers to Control-Finance”.

In its judgment, the court has ordered Reynolds to pay nearly US$143mln in restitution to defrauded customers and a civil monetary penalty of US$429mln. The order also bans him permanently from engaging in conduct that violates the US Commodity Exchange Act and CFTC regulations, registering with the CFTC, and trading in any CFTC-regulated markets.

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The case may serve as a warning signal to retail investors looking to invest in Bitcoin and other cryptocurrencies, with multiple regulators warnings that the still highly unregulated market exposes investors to possible fraud with very little chance of restitution.

In January, the UK’s Financial Conduct Authority (FCA) warned that investing in crypto assets meant consumers were “unlikely to have access” to the various protection bodies such as the Financial Ombudsman Service (FOS) or the Financial Services Compensation Scheme (FSCS), which protects customer’s monetary deposits if a financial services firm fails.

In late afternoon trading in London on Monday, Bitcoin was up 4.5% at US$58,160.